A judgment is a painful court order to pay a debt, and can arise from a lawsuit, a divorce, business dispute or an array of other possibilities. Judgments are public record. They will appear on your personal credit report and can wreak havoc on your credit scores. They can also hurt your ability to get a mortgage — unless you take specific steps.

If you’re hoping to get a mortgage, any mortgage company is going to examine what led to the judgment and, more importantly, how the judgment will be accounted for.

Whether buying a home or refinancing a home you own already, the judgment will be reviewed and examined in the same manner. The lender is looking for any potential signs of a disregard for financial obligations and inability to manage liabilities, as this could signify a future risk of default on the mortgage they’re issuing.

Get Your Free Credit Score & Monitoring

What Consumers Must Know

Ifthere are open judgments or garnishments specifically identified in the public records section of the borrower’s credit report used in conjunction with the loan acquisition…

Thenthe liability needs to be paid off at or before close of escrow on the new mortgage.

As an exception to the rule, the consumer — rather than having to pay off the judgment in full — can agree with the creditor to make timely and regular payments. The consumer will need to provide a copy of the written agreement with at least six months of timely payments made prior to the official mortgage loan approval. Additionally, a consumer is unable to prepay future months’ worth of payments in lieu of the payment history. In other words, there has to be a demonstrated consistent payment history. Additionally, the monthly payment amount must be accounted for in the qualifying process, which can limit borrowing power by increasing the consumer’s debt-to-income ratio.

Garnishments and Borrowing Power

Commonly, a judgment will involve wage garnishment. Wage garnishments are accounted for in the exact same fashion and affect debt-to-income ratio the way other payment liabilities such as a car loan, student loan or credit card would.

The debt-to-income ratio is a method lenders use to measure how much of your income is allocated for paying debts. The higher percentage of income that goes toward debt, the more challenging it can be to secure a mortgage. Conversely, the more income left over after paying debt obligations, the better.

Take a consumer who earns $10,000 in monthly income looking to borrow $400,000. Let’s assume this consumer’s total mortgage payment will be approximately $2,800 (principal, interest, taxes and insurance, and private mortgage insurance). Let’s also assume this individual has a $500 car payment, and $200 per month in minimum student loan payments.

If this consumer has no judgment or wage garnishment …

Then this borrower has a healthy debt-to-income ratio of 35%, meaning that 65% of his income is left over after all the obligations are accounted for.

The $600 per month payment on the judgment is 6% of the monthly income.

As a general rule of thumb, for every dollar of debt, two dollars in income is required to offset it (for ratio of 2:1).

Offsetting Judgment Debt

If you have the financial means and can take a portion of your available cash on hand to pay off the judgment in full, that is the ideal situation as the liability is paid off, and not to resume for future responsibility. If you don’t have the cash, the next best alternative is set up an agreement to pay off the debt in monthly payments. In order to accomplish this, you would need to have at least 55% of your monthly income left over after paying the wage garnishment/judgment liability, mortgage payment, and any other debt obligations like personal loans, credit cards and auto loans.

[Editor’s note: If you’re shopping for a mortgage and you have a judgment on your credit report, it’s especially important to check your credit reports to make sure there are no errors in how the debt is reported. You can check your credit reports for free every year from each of the major credit reporting agencies. It’s also helpful to keep an eye on your credit scores as you pay off debts and rebuild from a judgment, especially if you’re in the market to buy a home. There are free tools that allow you to monitor your scores, such as the Credit Report Card from Credit.com – which updates your scores and an overview of your credit reports every month.]

More on Mortgages and Homebuying:

Sign up for our weekly newsletter.

Sign up for our Credit Report Card and receive the latest tips & advice from our team of 50+ credit and money experts as well as a FREE Credit Score and action plan. Sign up now.

Scott Sheldon is a senior loan officer and consumer advocate in Santa Rosa, California. His work has appeared in Yahoo! Homes, CNN Money, MarketWatch and The Wall Street Journal. Connect with him at Sonoma County Mortgages. More by Scott Sheldon

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

http://www.avoidbk.com/ Jared Strauss

Great information, Scott. I would like to add that judgments are generally negotiable. I’ve negotiated recent settlements on judgments for 30-60%. So if a lump sum is available, settling may be an option in these situations.

http://www.credit.com/ Credit.com Credit Experts

Scott Sheldon replies: Hi Jared-thanks for the compliment. Yes they are definitely negotiable settling is always an option as all the lenders looking for is a zero balance in most situations or whatever the payment plan minimum payment is.

breanne05

I am in a similiar situation. My husband has a judgement against him from an individual in a way by default-for not appearing to the court date. Our credit is good enough to get a mortgage loan but will we have to take care of the judgement first before we could obtain a loan from a lender?

http://www.Credit.com/ Gerri Detweiler

Likely yes. I’d suggest you talk with a mortgage professional who can review your situation.

ScottSheldonLoans

Breanne,
The judgment may not be as bad as it sounds. Do you know what the minimum monthly payment is on the judgment? Remember when trying to qualify to buy a home or to get a mortgage the lender will use just the minimum payment obligation that’s due for counting the liability. If it’s a judgment with no payment plan then yes either he would have to get paid off in full perhaps settled or work out a payment plan. Hope this helps but it does not automatically mean you cannot get a loan.

BigG

My wife and I are looking for a USDA Loan. My credit is 661 hers is 643 we have a joint judgment for $4k from an auto repo back in 2009. The judgment was in 2010. I have a $50/month garnishment for the judgment which started last year 11/2013. No over credit issues. What are the chances we could be approved?

ScottSheldonLoans

The lender will more than likely take a fine tooth comb to the rest of your credit history as a result of the judgment. $50 per month as the minimum payment obligation on the judgment could absolutely be manageable so long as the other minimum payments on your credit obligations are low enough to support house payment. Depends of course on how much your purchasing the property for as that will dictate what you’re mortgage payment is going to be. For example if your new mortgage payment is $1500 per month, and you you have $50 per month on a garnishment payment you and your hubby would need to earn $3659 per month to qualify for a USDA loan assuming a 41% debt to income ratio. Lenders do take USDA loans a little bit more conservatively. Take your minimum payment obligations just the minimum payments on all of your credit accounts add that to your new proposed total mortgage payment and then divide that number by .41 that will tell you the income you need to offset the payment. Sounds like if that’s the only issue $50 per month may not be that big of a concern so long as you have income to offset that payment your other payment obligations and of course your new proposed total mortgage payment.

Steve Plummer

I work as a credit counselor in Massachusetts. Before that, I practiced law for 30+ years. Frankly, I have never seen a mortgage lender that was willing to loan money to a borrower who had an active judgment on the books—why? because a judgment acts as a lien against any real estate in the county, meaning that the judgment lien may (and probably will) take precedence over the new mortgage (because the judgment is sitting there already). Are you folks saying that a lender will ignore a judgment as long as the borrower is making payments? What about the impact of the judgment lien on real estate? Or maybe the law is dramatically different in Cal? Just wondering if I need to rethink the advice I am giving first time homebuyers, which always is to pay judgments before applying for a home loan. Thoughts?

ScottSheldonLoans

In short no lender will ever ignore a judgment. A judgment
needs to be resolved prior to closing escrow in every instance if it is not
already. If there is a judgment balance out there and there is no payment plan
associated with the liability, then yes it would have to be paid off before
buying the house. If there is or will be an agreed-upon active payment plan
between creditor and debtor, the liability is still not ignored, but rather is
accounted for in the debt to income ratio. As long as it is accounted for in
the debt to income ratio, this should suffice from a lending standpoint. Buyers
would be best served speaking to a qualified lender in their particular area in
which they are buying to make sure these requirements are eligible in their
particular area.

First-time homebuyers ought to see if a payment will be
manageable with their cash flow and if it is, that might be a better direction
to take as those additional funds could be used for a down payment and/or
closing costs.

Steve Plummer

I don’t mean to keep this going, and I certainly don’t want to come across as negative. But I’ve done credit counseling in three different states, in each of which a judgment operates as an automatic lien on any real estate owned (then or later) in the county. No lender in those states will make a home loan as long as the borrower has a judgment against him in the county where the real estate is located. On rare occasions the lender will consider a judgment as part of the debt to income ratio IF the judgment is in another county….but that’s rare because the judgment creditor could easily transfer the judgment to the judgment debtor’s county before closing. So, if a potential home buyer has an outstanding judgment, my advice is to pay it before approaching your lender about a home loan. The law in every state is different, of course, but paying the judgment is always the prudent course of action.

It can matter, so possibly true, but they may still want the judgment resolved before getting through underwriting. That is a requirement more and more.

Who is the collection law firm handling this for AMEX?

http://www.Credit.com/ Gerri Detweiler

Hmmm…if it is not on your credit reports then I am not sure how it would show up. Is it possible it expired?

ScottSheldonLoans

Most likely this will not show up as the statue of limitations of seven years is usually in effect. Whenyou apply for the home loan make sure to ask the lender if there’s anything on your credit report derogatory, this would be a prime opportunity to see if this is on the credit report and more importantly, if the lender is going have a problem with it.

http://www.Credit.com/ Gerri Detweiler

Ugh. I think it would be difficult to prove at this late date and it could hold up your home loan. If you had more time you could consider getting an attorney involved – they may have to produce their documentation if you sue. It might be worth at least consulting one depending on the amount of money involved.

http://www.Credit.com/ Gerri Detweiler

As the article stated if there is a judgment outstanding against you it may have to be dealt with before you get a mortgage. I would recommend you talk with a loan officer to explore your options for getting a loan.

tae4062

I had A judgment against me in 2008 from a capital one credit card that was satisfied and it is still showing up on my credit report. I can not find the letter of satisfaction. I am applying for a mortgage and they want proof how would even go about getting that? I do not remember the company name. would capital one have a file on that still?

http://blog.credit.com/ Kali Geldis

Hi Tae —

A judgment can stay on your credit report for 7 years, so if it hasn’t aged off by now, it may be happening soon (the month it was filed does matter).

You can contact Capital One to get proof that the debt was satisfied.

ScottSheldonLoans

Agreed Capital One should have the proof you need to get rid of it.

Jennie

In my divorce papers my ex husband agreed to take full responsibility for the truck that he took in our divorce however he stopped paying the note on it and it was repossessed. Now there is a judgment against me since I was co signer and they are garnishing my wages. I’m assuming I will never be able to get a mortgage since it should take me about 30+ years to pay it off.

http://www.Credit.com/ Gerri Detweiler

Jennie – please consult with a bankruptcy attorney. Judgments may continue to accrue interest and if this really will take you years to pay off you may be best off filing for bankruptcy and getting a fresh start.

TXguy

I have a civil judgment on my credit report filed in 12/2009. One of the reports stated that it is estimated to be removed around 9/2016. The amount is for $75K. It was for a home that I did not reside in. I was an investor for that property by agreeing to provide my credit for the buyer. Eventually they couldn’t make the pmts when the bubble happened and all issues were falling under my name. I have no plan on paying this judgment as I feel it is not mine and just being patient for it to go away. Anyways, I wanted to know if I could though apply for a mortgage for a new home when this is the only negative item I have on my report. My pmt histories are great and have a good score. I reside in TX. Please advise.

http://www.Credit.com/ Gerri Detweiler

@TXguy – This article is meant to help you understand your options if you are trying to buy a home and have a judgment on your credit. Beyond this, we recommend you talk with a lender who can look at all the individual factors and help you determine if you qualify.

Frank Coleman

I have a judgement for $991,000 as part of an old criminal case. I don’t pay anything, nobody is asking for anything, its just filed with my local county recorders office as a lien on any real property. Its not on my credit report. I’d love to buy something but I’m afraid this would mess me up. I have a great credit score, 14 years at the same job, no debt, substantial savings. Will this stop me if I attempt to buy in the county where the judgement is filed?

http://www.Credit.com/ Gerri Detweiler

Frank – It sounds like the answer is “it depends.” As you see from the comments it may be handled differently in different parts of the country. You’ll need to talk with a lender and be upfront about the situation to find out what your options are.

ashley

I have a judgement of 1800 filed against me from a car dealership. Over the last few years when I check my credit report it said that the judgment would be dropping off in 2015. It is currently still showing on my report and I am wanting to apply for a home loan. Do you have any recommendations.

http://www.Credit.com/ Gerri Detweiler

Ashley – A word of warning: in most states, judgments can be renewed. So even if it is scheduled to come off your credit reports it’s possible for it to be renewed. (It’s also possible they have given up on it.) We’ve published a new article about judgments here:I Found a Judgment on My Credit Report. Now What?

Mike

My wife had judgment on her credit reports and i did disputed with the credit bureaus and been removed because it’s already past 7 years from all the 3 bureaus. Now we applying for mortgage and the LO officer saying the underwriting want letter for explanation why were this judgment and how i did removed. My question now. If it been deleted from the credit report is there anyway the lender can see it? If so can this be a problem to get approval for my loan? Thanks

ScottSheldonLoans

Lenders in addition to pulling a credit report also do a complete and full background check. A common report lenders run is called frog card which takes into consideration any previous judgments, tax debt, previous marital status, and previous properties owned. This might be how your lender is coming up with it? If your lender wants this information it is probably just a button up the information they have for consistency sake. That’s what it appears to be based on this description.

http://www.Credit.com/ Gerri Detweiler

If the information on your credit reports is incorrect you of course have the right to dispute it. But that doesn’t necessarily mean it will be removed. With judgments it can be particularly challenging because it’s a matter of public record; in other words if the public record is wrong then the credit reporting agency may continue to pick that up from the source.

It should report a zero balance. Has the judgment creditor filed a release and satisfaction with the court? They should. If not, they may be subject to penalties.

http://www.Credit.com/ Gerri Detweiler

You can certainly consult one to find out what your prospects are. Whether you will be successful will depend on the facts and circumstances of your situation.

Tashika Itsallaboutme Taylor

I paid the judgement in full the same day I left court…I have the paper from the judge stating paid,satisfied, and discharge yet on my credit report from Equifax it says paid but the balance of what I paid is still appearing…that is why I feel that it should be removed….1.they are still showing a 685.00 total and 2. the filing date is wrong.3. My middle initial is not appearing on the document

What about a legal order that wasn’t a court order. Example… I woke up on a Thursday to my account balance being zero. I’m 22. Just getting into this whole pay your tax thing. Long story short… I had 750$ in my account, then I had zero. Turns out… I owed $554.89. The minute I found out about the garnishment / attachment (within 14 hours of it happening). I paid the entire balance from another account of mine.

It took place on a Thursday. It’s Tuesday and I still don’t have access to those funds. Hoping tomorrow they will return to me.

Anyways… the state dept of rev. said it doesn’t effect my credit as its not reported. BUT I wonder… will this effect my ability to get a loan for a home in the future? Other than this mishap… I maintain a 760 credit score…and a very low debt ratio.

Thanks!

http://www.credit.com/ Credit.com Credit Experts

Have you looked at your credit reports? You may want to keep any eye on them. It’s hard to understand why there would have been a garnishment without a judgment (and a judgment should have been on your credit reports). Here’s how to get your free annual credit reports.

ladagosta

i have a judgement against me from 04/09 the same time frame I was being awarded permanent disability with the cost of living rising I need to secure a mortgage to insure I will have a roof over my head years from now. my score is ranging from 676 to 771 fico is 676 how can i remove the judge if possible and or how can i secure a mortgage without going through a total nightmare my son just went through one and over not having rent receipts it fell through WOW Yet, right now my credit history is solid green lights just that judgement is a thorn please advise

Thank you for your reply I read somewhere that judgement remain in place for ten years did however speak with my bank they ran my report and said that was the only problem they saw with following through with a mortgage application and said unless i can do something about that they would refrain from submitting an application for a mortgage so now to sit and wait i guess and hope it drops off 😉

http://www.Credit.com/ Gerri Detweiler

Judgments may be reported for seven years or until the statute of limitations has expired, whichever is longer. However, some credit reporting agencies will remove all judgments seven years from the filing date.

Ashley Roberts

My husband and I are looking to buy with USDA. He has 2 unpaid judgements on his credit that he knew nothing about until a year ago. We were advised to let them “fall off” which his reports say they will “fall off” this dec. Now that we are getting closer to that time, we are getting closer to getting with lenders etc to buy a home. I was told last week by a lender that even though they “fall off” that we still can’t get a mortgage with them even though they are 7 years old. I can’t afford to pay even more of his ex wife’s debt than I already have. Is this true? Is there any way around it? We live in Missouri and the judgements are not in the same county where we live if that matters (I’ve seen talks about county on here). Thank you!

http://www.credit.com/ Credit.com Credit Experts

Judgments can be renewed . . . And judgments can result in wages being garnished (and hence less disposable income to buy a house). Simply not having them on a credit report is not the same as now owing them. And in Missouri, a judgment can result in a lien against a house, according to Nolo. http://www.nolo.com/legal-encyclopedia/judgment-liens-missouri-46842.html
We suggest talking to a lender and/or real estate lawyer about your options.

rascalkc

My ex husband and I consolidated our student loans (back when you could do that) and when we divorced, he was given responsibility to pay them back (the majority were his). He’s doing that, and there are no problems, but the full amount of the loans shows on my credit report as current debt. Will that keep me from getting a mortgage, even if the divorce decree shows that he’s making those payments?

Jeanine Skowronski

They could potentially affect you, but you may be able to show the divorce decree to a lender to explain the debts. A divorce attorney may be able to provide additional details about your possible recourse here.

Thank you,

Jeanine

Jeanine Skowronski

It may vary by lender. A 755 is generally considered a good credit score.

Thanks,

Jeanine

tasha

Hello Im in the process of purchasing a home and have a judgment fro 4900 everything is done, but this judgement was in 2013, it was for a home that i was staying in and i was ordered to move out by the courts because the house was going into foreclosure, the owner filed bankruptcy and i still have this judgement and its stopping me from moving forward with my purchase, any suggestions im in indiana

Jeanine Skowronski

Unpaid debts can make it harder to get a mortgage. In fact, lenders have been known to even request that a borrower pay down certain debts before they extend financing. So, yes, paying the debt off may make it easier to get a mortgage — but it might not have a meaningful impact on your score, since paid collections still remain on credit reports for up to seven years of the original delinquency date and most credit scoring models still consider them in your score calculations.

Thanks,

Jeanine

Jeanine Skowronski

So if you need a mortgage, you generally need a credit score of at least 580 for an FHA loan and at least a 620 for conventional loans. Here are some articles on how to improve your score:

I live in New York. I recently applied for a refinance with a new lender. No money out, just to lower interest rate. My application was approved and they came back with 781 as my credit score. But today the title report came back with a judgement for 2/7/2007 for 14K. From the research I did, it seems in NY a credit card judgement stays for 20 years, however, it appears after 10 years a lien can no longer be placed on your home UNLESS they file for that prior to the 1st 10 years. This comes under NY CPLR § 5203 (2012). Will I still be denied the loan even if no lien can be placed on the property? Would just a 10 year old judgement disqualify me even though everything else works in my favor?

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.